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Cambridge Industrial Trust: Acquisitions and private placement.

Saturday, August 14, 2010


CIT is acquiring new industrial properties in Singapore. The new purchases are to be at market valuations.

As CIT is already highly geared, to do this, it will have a private placement which will raise approximately S$37.6m, after deducting fees and expenses.  This will increase the number of units by 83,683,000. It has also secured new loan facilities, a S$50m term loan and a S$20m revolving credit from National Australia Bank Ltd.
 
By acquiring new assets valued at S$37.2m and going ahead with the private placement, CIT bumps up the value its total assets.  This is the reason why the total gearing level will reduce from 42.3% to 41.5%.

Of greater interest to existing unitholders is the effect of the acquisitions and private placement on their investment in CIT.  Will existing unitholders see greater income flow from their current investment in CIT?

Due to the acquisitions, total distributable income is expected to increase 5.7%.  However, in order to fund the acquisitions, the private placement would lead to an increase of 10.15% of units in issue.  This effectively dilutes the DPU of CIT, post acquisition. DPU is estimated to fall from 5.36c to 5.14c.  NAV per unit will also fall from 60c to 58c.

I continue to believe that AIMS AMP Capital Industrial REIT is a better investment than CIT in the world of industrial S-REITs.  The former has a stronger balance sheet and a bigger discount to NAV.  Although its yield is lower at 9.55% based on a unit price of 22.5c, it has greater room to gear up to make yield accretive acquisitions. Chances of a dilutive exercise like this one by CIT are therefore lower.

Read announcement here.

Related post:
AIMS AMP Capital Industrial REIT: Steady performance.

4 comments:

left_ray said...

Don't know this is how many time Cambridge did private placement. Cambridge just continue to dilute shareholder's value. Why can't they just get it over with? Issue rights like the rest.

By the way, if got time, please visit my blog. http://raysdoor.blogspot.com

Anonymous said...

WEhat do you think of CIT's DRP (dividend re-investment plan) scheme ? Is it a good/bad thing for a biz trust ?

Nick

AK71 said...

Hi left_ray,

Whatever the manager of a REIT does, I feel that it must have the interests of the unitholders at heart. Unfortunately, CIT's latest announcement does not show this.

I agree that a rights issue would have been more equitable and would provide existing unitholders a choice whether to increase their holdings in an enlarged capital base.

You have a unique reason for starting a blog. ;)

Thanks for linking to my blog. If you are still actively blogging six months on, let me know and I would be happy to link to your blog too. :)

AK71 said...

Hi Nick,

We have to know our motivations for investing in any instrument.

I am invested in Healthway Medical for its growth potential. A company that is growing needs more capital. I gladly accept scrip dividends in such an instance because I am looking for capital gains. Furthermore, Healthway's shares issued as scrip dividends are usually at a generous discount to the prevailing market price.

I am invested in REITs for regular income. As such, any dividend re-investment scheme by REITs is of no interest to me. In my opinion, CIT's dividend re-investment scheme is unattractive as the price of the units issued are usually very close to the prevailing market price. I might as well take the cash distributions and accumulate more units on weakness, if I really like CIT that much (which I don't).

Of course, if more or all unit holders opt to re-invest their dividends, it is good for the REIT or business trust since it would strengthen the balance sheets. Will it benefit the unit holders ultimately? Hard to say. I prefer to be pragmatic and take the cash. ;)

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